Finance Finance News What Brexit could mean for the Australian economy

What Brexit could mean for the Australian economy

Prime Minister Scott Morrison wants to sign a free trade deal with Britain. Photo: The New Daily
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As the dust settles on the biggest win for the Conservative Party since Margaret Thatcher in 1987, talk turns to how Australia might benefit.

Boris Johnson’s election victory all but guarantees Britain’s exit from the European Union, with departure now set for January 31.

But it also marks the beginning of what could be an even longer process: The renegotiation of trade deals with the EU, United States, Australia and more.

Many believe Australia is at the front of that queue.

UK High Commissioner George Brandis told the Nine-owned newspapers that Australia could be the first to sign a post-Brexit trade deal with the UK, as Australia’s political climate was less hostile to free-trade agreements than the US.

And Prime Minister Scott Morrison told The Australian a free trade agreement with Australia was high on Boris Johnson’s to-do list.

“We are very aspirational in what we can achieve,” Mr Morrison said.

Australia’s trading relationship with the UK isn’t what it used to be, though.

Despite leaders from both countries talking up the potential benefits of a post-Brexit deal, the UK hasn’t been Australia’s top two-way trading partner since the late 1960s.

China claims that title now, while the UK places eighth in the Department of Foreign Affairs and Trade (DFAT)’s 2018 rankings.

This is why many have described a potential deal with the UK as small beer.

But the volume of exports and imports only tells half the story.

For starters, strengthened ties with the UK would give a leg-up to Australian businesses hoping to expand overseas, according to University of New South Wales economics professor Tim Harcourt.

This is because many Australian businesses view the UK as a proving ground from which to base their international expansion.

“People tend to go to Britain, set themselves up, then go across the Atlantic, or across the channel. A bit of trade locomotion, as they say,” Dr Harcourt told The New Daily.

“So while the UK isn’t that important in terms of big trade values, like China, Korea, Japan and India are, it is quite important in small businesses getting a run.”

Dr Harcourt described this path to success as the “Kylie effect”, after pop icon Kylie Minogue launched her international career in the UK.

He said this relationship meant a free trade deal with the UK should include measures that support Australian businesses entering the UK, such as more favourable visa arrangements.

Australia will continue exporting “rocks and crops” to Asia, Mr Harcourt said.

But strong historical ties and a common language mean the UK offers fantastic opportunities in research and development, collaboration, and investment.

As with any deal, though, there could be downsides.

University of Sydney honorary research fellow Patricia Ranald said a free trade deal with the UK could deliver major wins to big business, at the expense of the average Australian.

This is important, given the UK is the second-largest source of total foreign investment in Australia, according to DFAT.

“One of the key issues that we have concerns about is that recent trade agreements have included special legal rights for foreign investors to be able to sue governments over health and environmental laws,” Dr Ranald told The New Daily. 

“Australia was actually sued under such provisions by the Philip Morris tobacco company, over our plain packaging legislation for tobacco.”

Longer patents for medical products and the deregulation of consumer data flows could also be on the agenda, Dr Ranald said.

European pharmaceutical companies, including those originating in the UK, have used other trade agreements to extend patent monopolies and delay the availability of cheaper medicine.

And while it’s unclear whether they would push for similar something in a deal with Australia, Dr Ranald said the Johnson government’s politics suggested greater corporate rights would be on the table.

“The other thing about all these trade deals is negotiations take place behind closed doors. We don’t actually see the text until the deal is done,” Dr Ranald said, adding that a UK trade deal should include commitments to uphold international standards on labour rights and environmental protection.

“The negotiating text should be released … should be made public and subject to independent evaluation of its costs and benefits before it’s signed. At the moment, that doesn’t happen.”

Even so, Dr Harcourt believes Britain is unlikely to fight too hard for big business.

“The UK needs friends now,” he said. “So I don’t think they’ll push it too much.”

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